Ing. Tomáš Dudáš, PhD.

Least developed countries – basic criterialow-income (three-year average GNI per capita of

less than US $905, which must exceed $1,086 to leave the list)

human resource weakness (based on indicators of nutrition, health, education and adult literacy)

economic vulnerability (based on instability of agricultural production, instability of exports of goods and services, economic importance of non-traditional activities, merchandise export concentration, handicap of economic smallness, and the percentage of population displaced by natural disasters)

Current list of LDCs

Financing economic developmentLeast developed countries often suffer a

severe lack of domestic capitalVicious circle of poverty

Possible means of external financingOfficial development aidForeign loansPortfolio investmentForeign Direct Investment

ODA – questionable effectiveness

Potential positive effects of FDI inflows into developing countries

New workplacesGrowth of labor productivityExport growthInflow of new technologiesInflow of management know-how

Ultimately – GDP growth and growth of standards of living

Empirical evidenceBlomstrom, Lipsey, and Zejan (1992)Found that FDI has a strong effect on economic

growth in Least Developed Countries (LDCs).

Borenzstein, de Gregorio & Lee (1998) – tested effect of FDI on growth for 69 developing countriesFor countries having a low initial stock of human

capital (as is the case in many African countries): “FDI is an important vehicle for the transfer of technology,

contributing relatively more to growth than domestic investment.”

FDI found to be 3 times more efficient than domestic investment in spurring growth

FDI and Least Developed Countries (LDC)These countries are overlooked by potential

investorsSub-Saharan Africa– most problematic region

If we remove FDI into extractive industries in this region then the yearly inflow will amount to – 4-5 bln. USD

For comparison – 10 % of the global population lives here

These countries are long time clients of the World Bank and the IMF – despite this fact they have only a limited success in attracting FDI

Basic provisions needed for attracting foreign investors

Political stabilityException – fossile fuels and other minerals

Basic public servicesSecurity, basic health care services, basic

government services

Basic infrastructureVoda, elektrika, prístup k letisku alebo k prístavom,

základné telekomunikačné službyWater, electricity, roads, airports and harbors,

basic telecom services

Most interesting sectors for FDI in the least developed countries(Jeffrey Sachs)

Traditional extractive industries

Industry based on local raw materials Ex. textile industry based on local cotton production

Tourism

Labor intensive industries

Lesss demanding IT services Call centres, low level business services…

First step to success– gaining first investorIn the case of LDCs the first successful FDI project is

crucial – sends a positive signal to other potential investors

The first investor may get extra advantages and subsidiesTax subsidies, cheap land, tariff exemptions, industrial

parks, special economic zones, other financial subsidies

IMF and the World Bank did not encourage investment incentives for foreign investors in Africa – but nowadays their position is changing

How could donor countries help

Help in the field of investment promotion

Helping to build the basic infrastructure

Greatest help – opening of the markets to products coming from least developed countries

China in Africa: 3 dimensions

• Foreign direct investment

• Aid

• Trade

FDI outflows from China

China FDI flows to developing world

Africa3%

Asia53%

Latin America37%

Other7%

China’s FDI outflows to Africa

Comparison of FDI in Africa30

19

11.5

5.53.5

1.9 1.9 1.6

0

5

10

15

20

25

30

35

$ b

illi

on

s

Africa's mineral reserves as % world reserves

89

6053

3728

2315 14 12 10 7 7 6

0

10

20

30

40

50

60

70

80

90

100

Platinu

m

Diamon

ds

Cobalt

Zircon

ium Gold

Vanad

ium

Uraniu

m

Man

gane

se

Chrom

ium

Titaniu

m OIL

Nickel

Coal